Yes it should work although you dont need to type
"public_html".

 Could be like this:http://bluelight/lunarpages.com/images/nicegirl.jpg

                      Bluey

Here's one way of doing it. Let's say you've name a folder on the server side, images. When you're adding the image to your web page, it would look like this:
<img src="images/theimagename.gif" width="enterthewidth" height="entertheheighth">

 Now, on your computer, you will need to have a folder named: "images" inside of the directory that the web pages you will be placing these images on will be.
 For example: You have a folder under the C dive named: my site. Inside that folder you would create on named: images.
 This way, if you wanted to preview the webpages offline, before you uploaded them, the images would show up.